It was this very day that I was telling some visiting students about the silliness of the old populist silver movement of the late 19th century, how they ridiculously believed that all economic troubles could be solved if only the government would print more money — not realizing that more money only means watering down the value of the existing money and disturbing pricing signals along the way. How silly these people were! Ha, ha, ha. Then I get back to the computer to find that the Fed has precisely the same theory.
Source link: http://blog.mises.org/7173/more-money-makes-us-rich/
More money makes us rich
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“Bonds were lower. The yield on the 10-year US Treasury bond rose to 4.480 percent from 4.462 percent on Monday and that on the 30-year bond climbed to 4.760 percent from 4.724 percent. Bond yields and prices move in opposite directions. – AFP/de”
i’m gonna start drinking…
http://www.nytimes.com/2006/06/11/magazine/11national.html?ex=1307678400&en=e896995a585867c0&ei=5088&partner=rssnyt&emc=rss
We call it “injecting liquidity” now.
The local ABC news just showed a soundbite of an “expert” that said:
“More money means more spending, which means a better economy.”
Some Keynesians still believe that.
Yes, the believe that more money, i.e., the generally accepted medium of exchange, will lead to an increase in the quantity or quality of real goods and services is a fallacy, and likely one of the longest standing in economics. However, as Mises showed, those who receive the new money first do benefit, but only at the expense of those who receive it later, and this is arguably a major reason why the myth continues. The redistributive aspects of monetary inflation are significant.
Everyone break your neighbor’s window! (It’s for the common good, after all!)
The NBC Nightly News opened with this story, and I lost count of the fallacies contained in Brian Williams’ set-up alone. To go by his tone, it was like the gods descended from Olympus to set the world right. All hail the Fed, don’t you know.
“More money means more spending, which means a better economy.”
Until people begin to find it simply impossible to continue production because they have worn down their capital stock to nubs.
At that point there’s nothing left to spend the money on.
Lucky for the Fed they were only “injecting liquidity”. Had they injected anything else, the prohibitionists would have had them arrested.
A little study of the real bills doctrine might force you to reconsider just how ‘foolish’ the free silverites were. If, for example, the government had reduced the money supply by 10%, while simultaneously reducing the assets backing that money by 10%, then the value of the money would be unaffected. But there will be 10% less money, and the resulting tightness of money will be recessionary.
At least they are being somewhat honest about this causing an increase in money. Now if they’d just explain how this IS inflationary!
I’m waiting for some “expert” to say something wildly unexpected one day, such as “More money eventually will cause a return to the barter economy.”
“If, for example, the government had reduced the money supply by 10%, while simultaneously reducing the assets backing that money by 10%, then the value of the money would be unaffected. But there will be 10% less money, and the resulting tightness of money will be recessionary.”
Not true.
You have neglected that prices are arbitrary. Prices will all fall by 10% but that wont be a recession. Living standards will be unaffected, only the numbers will change.
Of course, all that assumes that the US dollar is the only possible medium of exchange.
Speaking of which, are any of these Federal Reserve true-believers mentioning the decline of the Dollar relative to the Euro that this “injection” is causing?
The irony here is that Greenspan in his interviews tried to defend Bernanke for seemingly being more hawkish. Because they didn’t cut between meetings like Greenspan did in both 1998 and 2001, Bernanke was perceived by some as being more of a inflation hawk than Greenspan. This was not appreciated by some of the Jim Cramer-types who demanded immediate action and who started saying “if only Greenspan was still Fed chairman”.
Greenspan however seemed anxious not to criticize Bernanke so he started talking about how Bernanke had a less favorable inflation environment than he had and so it was right to be more hawkish. And then it turns out that Bernanke wasn’t more hawkish, only more committed to the principle of only changing interest rates during formal meetings.
Greenspan was actually right about the inflationary environment being worse now than in 1998 and 2001. In 1998 the dollar was rising and commodity prices were plummeting. Now we see the dollar falling sharply and we see the oil price at an all-time high of $82 per barrel and the gold price at $730 per ounce, the highest level since 1980. Most commodity price indexes are at record highs too and are generally up about 20% compared to the same period last year. While government inflation numbers systematically underestimate inflation, the sharp increase in commodity prices will still likely push even official inflation above 4% by October or November.
Greenspan was asked some surprisingly good question last night by Jon Stewart.I think he has an Austrian on his staff.
And thus, I quietly continue to increase my holding in Gold & Silver.
Jonathan:
“You have neglected that prices are arbitrary. Prices will all fall by 10% but that wont be a recession. Living standards will be unaffected, only the numbers will change.”
If a dollar is a claim to one ounce of silver, then a 10% reduction in the number of dollars, accompanied by a 10% reduction in the amount of silver held by the bank, will lead to tight money (and recession) without affecting prices. You might google “real bills doctrine” to see why the US dollar is not fundamentally different from these silver-backed dollars.
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